Ethics & Public Policy Center

A Conservative Alternative to ObamaCare

As ObamaCare’s failures and victims mount by the day, Republicans have so far mostly been watching in amazement. They expected the law to fail, but even among its most ardent opponents few imagined the scale and speed of the fiasco.

Seeing the pileup, Republicans might be tempted to step aside and let ObamaCarecontinue to disappoint and infuriate Americans. After all, the GOP doesn’t have the power to repeal the law, or even to make meaningful changes to undo its worst effects. So why not just watch the Democrats pay the price for their folly?

But such passivity would actually protect the Democrats from paying that price. What Republicans can and should do is offer the public something better. Now is the time to advance a conservative reform that can solve the serious, discrete problems of the health-care system in place before ObamaCare, but without needlessly upending people’s arrangements or threatening what works in American medicine. That the Democrats are now making things worse doesn’t mean the public wants to keep that prior system, or that Republicans should.

The biggest Republican misconception about health care is that the system before ObamaCare was a free-market paradise. On the contrary: It has consisted chiefly of massive and inefficient entitlements that threaten to bankrupt the nation; the lopsided tax treatment of employer-provided coverage that creates incentives for waste and overspending; and an underdeveloped individual market struggling to fill the gaps.

Exploding health-care costs and millions left needlessly uninsured are a result of misguided federal policies. Solutions require targeted reforms to those policies.

The outlines of such reforms have been apparent for years. The key is to enable all Americans to purchase coverage and to approach health care as consumers: with an interest in quality and an eye on cost.

The first step of a plan to replace ObamaCare should be a flat and universal tax benefit for coverage. Today’s tax exclusion for employer-provided health coverage should be capped so that people would not get a bigger tax break by buying more extensive and expensive insurance. The result would be to make employees more cost-conscious; and competition for their favor would make insurance cheaper.

That tax break would also be available—ideally as a refundable credit sufficient at least for the purchase of catastrophic coverage—to people who do not have access to employer coverage. This would enable people who now choose not to buy insurance to get catastrophic coverage with no premium costs. It also would give those who want more-comprehensive coverage in the individual market the same advantage that people with employer plans get.

Medicaid could be converted into a means-based addition to that credit, allowing the poor to buy into the same insurance market as more affluent people—and so give them access to better health care than they can get now.

All those with continuous coverage, which everyone could afford thanks to the new tax treatment, would be protected from price spikes or plan cancellations if they got sick. This guarantee would provide a strong incentive to buy coverage, without the coercion of the individual mandate. People who have pre-existing conditions when the new rules take effect would be able to buy coverage through subsidized, high-risk pools.

By making at least catastrophic coverage available to all, and by giving people such incentives to obtain it, this approach could cover more people than ObamaCare was ever projected to reach, and at a significantly lower cost.

The new alternative would not require the mandates, taxes and heavy-handed regulations of ObamaCare. It would turn more people into shoppers for health care instead of passive recipients of it—and encourage the kind of insurance design, consumer behavior and intense competition that could help keep health costs down. Redesigned and directed this way, the flow of federal dollars and tax subsidies would do much less to distort health markets than it has for the last several decades, while getting far more people insured.

Conservative policy experts have long proposed such approaches, but congressional Republicans, with a few honorable exceptions, have not taken them up in recent years. In 2009, for instance, House Republicans offered an alternative to ObamaCare that did nothing about today’s market-distorting tax policy and thus did not do much to help the people whom that policy—by inflating premiums—has locked out of the insurance market.

Some Republicans think that political success requires nothing more than watching ObamaCare fail. But if the new system quickly implodes, that would be all the more reason to have an alternative on hand—other than another leftward move toward single payer. And it might not implode so quickly.

Other Republicans fear that any alternative would amount to ObamaCare Lite, just another big government health-care program. But a real market-oriented conservative reform would take us toward an actual functioning consumer market in coverage—and so to the right not only of ObamaCare but of the system that preceded it.

There has also been a fear among some Republicans that proposing an alternative would give Democrats a target and distract the public from the expected and now real failures of ObamaCare. But the absence of a credible alternative has been the GOP’s greatest weakness in the fight against ObamaCare, and it is probably why polls show that even many people who are skeptical and concerned about ObamaCare do not support full repeal.

Defenders of ObamaCare are using the absence of a Republican alternative to suggest that their law is the only answer to the grave problems of American health care and that without it millions of Americans would continue to lack access to coverage. That argument is their final trump card. It is time for Republicans to take it away.

Mr. Ponnuru is a visiting fellow at the American Enterprise Institute and a senior editor at National Review. Mr. Levin is the editor of National Affairs and a fellow at the Ethics and Public Policy Center.